Is the ‘Great Australian Dream’ still alive?

by Greg on February 22, 2012

Property ownership has long been an integral part of the Australian lifestyle, instilling people with a sense of pride and security, not to mention the enjoyment and sense of belonging that comes with owning property.

But is it still possible for couples or young families starting out to fulfill their dream of owning their own home? With median property prices continually on the rise, decreasing job security fueled by the global financial climate and dwindling profit margins across many industries, plus the host of additional costs awaiting buyers, is the ‘Great Australian Dream’ turning more into a nightmare?

For many first timers, buying a home has become increasingly difficult and risky. While we have seen an increase in the number of first home buyers since the introduction of the first home buyer’s grant, and more recently the NSW state government stamp duty relief, many have only jumped to action since the November and December 2011 interest rate cuts – the first in over 30 months.

This situation shows that for many first time buyers, dollars and cents make all the difference between buying or continuing to rent. For Michael Willcocks, a 28 year old publicist for Men at Work Communications, the opportunity of getting into his own home came and went too quickly.

“While I had the deposit together, the high interest rates made it impossible for me to get into the market with median prices close to half a million”, he said. “Once the RBA cut the rates I really looked at buying, but with very little time left on the stamp duty waver, a saving of over $15 000, it was hard finding the right property and getting finance approval in such a short time. In short, I missed the train and now it will take me at least another 6 to 8 months to save the extra cash”.

Property finance expert Robert Projeski had already warned in late 2011 that the stamp duty relief should be extended into 2012 for the very reason that it put potential first time buyers under unnecessary pressure. Projeski, who heads independent mortgage management firm Australian Mortgage Options (www.amo.com.au), has seen many first time buyers struggle to find the right property in order to make use of the state government incentive before it expired on December 31, 2011.

Petra and Michael Power, a retail manager and construction equipment rep respectively, only just managed to buy their first home before the incentive drew to a close, but not without considerable risk. The Powers signed their purchase contract without having finance in place, risking losing their deposit should they not be approved, in order to make use of the stamp duty saving.

“We simply could not have bought for at least another 6 months if we had to pay the stamp duty”, said Michael Powers. “That’s why we jumped in, although we would have liked more time to look around for a more suitable property”.

Stamp duty is more of a revenue stream than an actual administrative cost, and is calculated based on a percentage of the purchase price of a property. With median property prices close to half a million dollars today, the stamp duty potentially adds another $17 000 over and above the deposit, loan charges, transfer and solicitor’s fees and the cost of moving, keeping many potential buyers stuck in the rental rut.

“I question whether there should even be a stamp duty applied to first home buyers at all”, said Mr Projeski. “If we really want to encourage property ownership in Australia, ensure ongoing growth of the real estate industry and keep the ‘Great Australian Dream’ alive, we should consider abolishing it. With more first time buyers entering the market, they will eventually sell, buy again, upgrade or invest, which would surely compensate any lost revenue for the government, while driving greater market activity.”

“With first home buyers only making up 17% of property purchases last year, an ongoing waiver of the government stamp duty nationally would surely increase their share in 2012, as well as drive home ownership and support the economy as a whole”, added Projeski.

Australian Mortgage Options was recognised as the Lowest Rate Home Loan for the third year running by industry watchdog Cannex last year, which explains why they had been inundated with loan applications from first home buyers in the lead-up to the close of the stamp duty relief.

In the bigger picture, the more home ownership there is, the greater people’s pride and enjoyment, making for happier people, which is what the ‘Great Australian Dream’ is really all about.

Written by Erik Bigalk

Erik is a freelance writer working for various property publications and conducting interviews with agents, developers, landscape gardeners and so on.
Having been a real estate agent himself, as well as property buyer’s agent, Erik has written a lot about the topics and issues related to and experienced by people around property, whether it be buying, selling, owning, renovating, investing and so on. Find out more about Erik on his website www.ErikBigalk.com

States are addicted to the revenue stream that stamp duty provides, but have not provided innovative ways for first-time buyers to handle it. For example, one good suggestion is for stamp duty to be paid over a number of years after the purchase of the property – something like paying back a university debt.

To my mind there are two issues affecting affordability of houses.
1. Houses are generally too big
2.Big Builders and developers are making land a sellers market. Although they have huge land banks they are only releasing blocks slowly to keep the price up.e I would like to see stamp duty reduced with states making up the revenue by charging developers an additional land tax on land that has been zoned residential. ( that should encourage them to bring more land to the market.)

The Australian dream of getting your foot onto the property ladder could be shifting.
According to the latest available ABS statistics, 29% of Australian’s rent, either out of choice or due to personal circumstances. Social trends are having more of an impact on the property market; people are waiting longer to get married or are more careers focused, therefore buying a property might not necessarily be on the top of their priority list. Additionally, many people are looking at renting their properties instead of selling, therefore making both markets equally appealing.
To buy or to rent is a common debate, and both sides can have their advantages. Here is a blog that could help highlight common misconceptions about both markets:http://bit.ly/yyLaU2